Handbook of Anti-Money Laundering.

CHAPTER 24CORRESPONDENT BANKING

The Financial Action Task Force (FATF), Joint Money Laundering Steering Group (JMLSG) in the UK and the Wolfsberg Group, amongst others, have highlighted the importance of being diligent when conducting correspondent banking and have produced specific guidance to be applied by such firms. The JMLSG guidance provides the source of information for this chapter, and is reproduced with the kind permission of the Joint Money Laundering Steering Group.

Correspondent banking is defined as the provision of banking-related services by one bank (correspondent) to an overseas bank (respondent) to enable the respondent to provide its own customers with cross-border products and services that it cannot provide them with itself. This is typically due to a lack of the respondent having an international network.

Correspondent banking activity can include establishing accounts, exchanging methods of authentication of instructions (e.g. by exchanging SWIFT or telex test keys and/or authorised signatures) and providing payment or other clearing-related services. A correspondent relationship can be based solely on the exchange of test keys, with cover for direct payment instructions being arranged through a third bank for credit to the correspondent's or respondent's own account in another jurisdiction. Activity can also encompass trade-related business and treasury or money market activities, for which the transactions can be settled through the correspondent relationship. ...